Quick Facts

Seychelles’ economic freedom score is 57.5, making its economy the 114th freest in the 2015 Index. Its score has increased by 1.3 points since last year, with declines in labor freedom and the management of government spending outweighed by considerable improvements in trade freedom and freedom from corruption that have enabled the island economy to achieve its highest economic freedom score ever. Seychelles is ranked 20th among 46 countries in the Sub-Saharan Africa region.

Seychelles has posted the fourth best record for advancing economic freedom over the past half-decade. Since 2011, Seychelles has increased its economic freedom score by 6.1 points, with scores advancing in eight of the 10 economic freedoms. Most impressively, economic freedom has not declined in any of the factors. Led by monetary stabilization and robust trade reforms, Seychelles has propelled itself to the upper tier of the “mostly unfree” category.

Seychelles’ recent reform success has helped to improve a weak and uncompetitive economic framework. Despite recent improvements in government accounts, however, Seychelles was forced to accept an IMF loan in 2011 to handle its overall debt and spending levels, and the economy remains one of the most closed in the world, reducing competition and holding back investment. A restrictive business environment and strict labor regulations limit business formation and formal employment.

Background

The People’s Progressive Front has ruled Seychelles since 1977, when France Albert René seized power in a bloodless coup. In 2004, René ceded power to Vice President James Michel. Michel was elected to a third five-year term in May 2011. Seychelles enjoys a relatively stable economic environment as a high-middle-income country with a lucrative fishing and tourism industry. Piracy remains a significant threat off the coast of Seychelles. In early 2013, tropical cyclone Felleng brought torrential rain, flooding, and landslides that destroyed hundreds of houses.

Corruption and extensive drug trafficking and money-laundering continue to plague the archipelago. Concerns over government corruption have focused on a lack of transparency in the privatization and allocation of government-owned land as well as dysfunction in government finances, illegal procedures, and embezzlement. Judges generally decide cases fairly but face interference in high-level economic and political cases.

The top individual income tax rate is 15 percent, and the top corporate tax rate is 33 percent. Other taxes include a vehicle tax, a tax on interest, and a new value-added tax. Overall tax revenues equal 26.6 percent of domestic income, and government expenditures amount to 36.8 of percent domestic production. Public debt is equivalent to 62 percent of GDP.

The requirements for incorporating a business have been simplified, but regulatory inefficiency and lack of transparency still hamper the regulatory environment. The labor market remains inefficient, and the public sector is the main source of employment. Inflation stabilized at a low level in 2013, aided by exchange rate strength, and the state rebalanced utility prices to cut implicit subsidies.

The average tariff rate was 28.3 percent as of 2007. Reliance on tariff revenues has declined but remains relatively high. Foreign investors can repatriate profits. Foreign investment in many sectors is restricted. The financial sector, dominated by banks, offers offshore services. The government owns two of the largest banks. The capital market is evolving, and there is a stock exchange.